Wednesday, February 29, 2012

Have you heard the one about the tree that survived over 3,500 year
of everything the planet could throw its way only to succumb to the
idiocy of a woman smoking meth inside it? Oh boy.

The Senator, a 125-feet pond cypress, the 5th oldest tree in the
world, met its end on January 16, 2012 after flames were seen shooting
out “like a chimney”. Firefighters helplessly watched as the tree
collapsed; ending an amazing life and puzzling investigators. Was it
lightning? Arson? Or a meth-smoking idiot?

Either that or we are watching recent stroke victims attempt to articulate the simple argument that the EPA rewrote the Clean Air Act, something usually considered a no-no.
Good grief.

First up some backround from Bloomberg:EPA’s Greenhouse Gas Rules Are Illegal, Opponents Tell Appeals Court Panel

The U.S. Environmental Protection
Agency’s limits on industrial emissions of greenhouse gases
including carbon dioxide are illegal and must be thrown out,
opponents told federal judges in Washington.

A three-judge panel of the U.S. Court of Appeals today
considered challenges to the agency’s rules determining which
polluters are covered and when states and industries must comply
with regulations curtailing the use of greenhouse gases.

“The agency crossed the line from statutory interpretation
to statutory revision,” Peter Keisler, a lawyer for the
National Association of Manufacturers, told the judges. He said
the EPA violated the law when the agency raised emissions
thresholds far above what Congress called for.

Companies such as Massey Energy Co. (MEE), business groups
including the U.S. Chamber of Commerce and states led by Texas
and Virginia are seeking to stop the agency through more than 60
lawsuits. Some argue that the agency relied on biased data from
outside scientists, including some affiliated with the so-called
climategate scandal.

The arguments were split into three parts. The panel heard
arguments yesterday on the agency’s finding that greenhouse
gases are pollutants that endanger human health. They also heard
arguments against a 2010 rule on motor vehicle emissions that
opponents said improperly sets greenhouse-gas standards for
stationary sources, such as steel mills and power plants.

‘Tailoring Rule’
Today, the court considered challenges to the EPA’s
“tailoring rule,” which limits the businesses covered by
carbon regulation and phases in controls.

The agency aims to phase in industrial polluters covered by
the carbon rules through 2016. The EPA argued in court filings
that the tailoring rule is acceptable under the Clean Air Act
and necessary to avoid states being overrun with permit
requests....MORE

And from Greenwire:

Judges' questions put heat on EPA, rule challengers

Both U.S. EPA and its adversaries faced tough questioning this
morning on the second day of arguments over the lawfulness of the
agency’s greenhouse gas regulations…

Today, the focus was on the “tailoring” rule, which interprets the
Clean Air Act in such a way that only major polluters are required to
obtain permits for greenhouse gas emissions. The court was considering
it alongside the “timing” rule, which required that new controls of
greenhouse gas emissions from stationary sources would be triggered on
Jan. 2, 2011, and the challenge to older regulations.

The tailoring rule is considered the most vulnerable to legal attack
because EPA was forced to effectively rewrite the Clean Air Act in order
to prevent the regulations from applying to nonindustrial sources like
schools and apartment buildings.

A key issue is whether the petitioners — industry groups, utilities
and states — have standing to challenge the rule because they are not
currently injured by its impact and would not be affected if the court
struck it down. All that would mean is EPA would have to regulate more
polluters.

All of the judges expressed some belief that standing could be a major obstacle for petitioners.

Chief Judge David Sentelle in particular appeared incredulous
that the remedy the petitioners seek is effectively to give EPA more
power to regulate.

“Counsel, that doesn’t even make good nonsense,” he told Texas Solicitor General Jonathan Mitchell....

Why do we have February 29 this year, and not in other years? Of
course it’s because the ratio between the Earth’s orbital period and its
rotational period is not an integer, but rather is about 365.242199.
Let’s call this 365+α. And this is approximated well by the rational
number ,
the first convergent of the continued fraction. The convergents of
continued fractions give, in a sense, the “best possible” rational
approximations to irrational numbers.

Yury Grabovsky observes that the next few convergents to α are 7/29, 8/33, 31/128, 163/673, and indeed the Iranian calendar
uses 8 leap years in 33. This is a bit harder to compute in one’s head.
31/128 would be pretty easy to work with — a year is a leap year if
it’s divisible by 4, except not if it’s divisible by 128.
(Implicit in the Gregorian calendar rules — no leap years in years
divisible by 100, except if they’re divisible by 400 — is the rational
approximation 97/400, but that’s not a convergent.)

Therefore I nominate February 29 (in years when it occurs) as a new
holiday, to be observed by the consumption and/or use of things that
rely on rational approximations to irrational numbers.
What are these, you ask?

1. go look at the moon. The Metonic cycle
is a period of 19 years, which is very nearly 235 (synodic) lunar
months. So the full moon, for example, falls on (approximately) the same
day on the solar calendar in the year N and in the year N + 19. The
Hebrew calendar has seven leap years in nineteen, where the leap years
have 13 (lunar) months instead of twelve. The Islamic calendar has
twelve lunar months in each year, with the result that they fall
backwards lunar months in nineteen lunar years. Oh, and on February 29, 1936 the phase of the moon was the same as it is today.

2. play some music. Western music theory is based on the existence of the circle of fifths, which in turn is based on the fact that $(3/2)12
\approx 2^7$ — that is, twelve perfect fifths is very nearly seven
octaves. Taking logs this becomes $\log_2 3 \approx 19/12$. The fact
that this is not the best approximation ever — it’s off by $0.0016$ — as
well as the desire to incorporate other consonances into musical tuning
caused lots of trouble....MORE

UVXY (ProShares Ultra VIX Short-Term Futures ETF) is the best dirty hedge for the TVIX.
From VIX and More:

I managed to let a couple of days pass without mentioning the
suddenly white-hot topic of the VelocityShares Daily 2x VIX Short-Term
ETN (TVIX)
only to discover at a Bloomberg Volatility Symposium in San Francisco
last night that there appears to be an insatiable demand for more
information on the subject. While the links below should present the
lion’s share of the background and context about the key issues related
to TVIX, today I am presenting some additional information related to
the volume of TVIX for the first two months of 2012 and the
corresponding volumes in the front month and second month VIX futures.
The graphic below plots daily volume in TVIX (solid black line) on the
right Y-axis and volume in the front two months of VIX futures, using
settlement prices from the CBOE Futures Exchange (CFE), on the left
Y-axis.

Once again I will let the graphic do most of the talking, but clearly when Credit Suisse (CS)
announced a suspension of new creation units in TVIX after the close of
the regular trading session on February 21, volume in both TVIX as well
as the front month (dotted dark blue line) and second month (dashed
medium blue line) dropped dramatically, almost in lockstep....MORE

WASHINGTON, DC—A report released Monday by the Federal Consumer
Quality-Of-Life Control Board indicates that the cost of living now
outstrips life's benefits for many Americans.

"This is sobering news," said study director Jack Farness. "For the
first time, we have statistical evidence of what we've suspected for the
past 40 years: Life really isn't worth living."

To arrive at their conclusions, study directors first identified the
average yearly costs and benefits of life.

Tangible benefits such as
median income ($43,000) were weighed against such tangible costs as
home-ownership ($18,000). Next, scientists assigned a financial value to
intangibles such as finding inner peace ($15,000), establishing
emotional closeness with family members ($3,000), and brief moments of
joy ($5 each). Taken together, the study results indicate that "it is
unwise to go on living."...MORE

First up, Bloomberg:Abound Solar Shutters Plant, Raising Specter of Solyndra Failure
Abound Solar Inc., which received a
$400 million U.S. loan guarantee to build two factories, shut
down production and fired 180 people after panel prices fell by
half last year.

Abound stopped making its first-generation solar panels and
will refit its manufacturing lines to produce more efficient
products, the Loveland, Colorado-based company said yesterday in
a statement.

The move is a response to the same forces that drove
Solyndra LLC into bankruptcy after it received a $535 million
loan guarantee from the same U.S. Energy Department program,
said Pavel Molchanov, an analyst at Raymond James & Associates
Inc. in Houston.

“Abound is facing the same headwinds -- cheap crystalline
silicon from China -- that made Solyndra a political football,”
Molchanov said today in an interview. “I think they made the
right decision to conserve cash and focus on improving
efficiency so they can ramp up when they’re ready.”

The company expects to resume full production by year-end
with cadmium-telluride panels that will be able to convert 12.5
percent to 13 percent of the energy in sunlight into
electricity. Its current products have conversion efficiency
rates of 10.5 percent....MORE
And from TheStreet:Why First Solar Is a Worthless Stock

First Solar(FSLR) shares aren't going to zero, but the stock is worthless.

The solar company has left investors with way too many questions and
too few answers and is dead money in 2012 as the company continues to
lay out a vague long-term plan for 2013 to 2015.

Solar has always been a better trade than investment, and the
action in First Solar in 2012 is a typical sign of that maxim: Shares
rallied to as high as $50 earlier this year, or by 35%, after falling by
70% last year. If shares were oversold they were then quickly
overbought and after Wednesday morning's 10% drop, shares are now
slightly negative in 2012 trading.

If solar remains good for a trade from time to time, it remains a
pass based on 2012 fundamentals which imply profitless years for the
Chinese solar companies even as shipments grow, and a year of transition
for First Solar.

First Solar may now be back at square one in terms of 2012
trading, but it's not back at square one in terms of either its
short-term or long-term outlook. The company seemingly cleared the decks
in its December 2011 guidance, after ousting former CEO Rob Gillette
and bringing Chairman Michael Ahearn back in as interim CEO. But things
now look even worse, or as Stifel analyst Jeff Osborne wrote, a "bleaker
outlook" than just two months ago.

"We did not get a sense that the company is firmly on the path to
navigate the current challenging environment," Stifel's analyst wrote.

And go figure: Without a permanent CEO in place, First Solar said
it will soon unveil a three-year strategic plan that should show
investors where it is going and how it will succeed. How can First Solar
be cementing a three-year plan that it will unveil in May when it is
still conducting a search for a CEO?...MORE

Wal-Mart. Analysts largely miss the boat when they conclude that
higher gas prices will eat into all retail spending. A hedge fund
manager whose commute consists of a few miles round trip from his home
in the back country of Greenwich, Connecticut, to the town's train
station won't blow any less dough at Tiffany's or The Palm if gas goes
to $5 per gallon, or even $10 per gallon. The millions of workers up and
down the eastern seaboard who commute by train, bus, subway, boat or
bike are similarly immune from spikes in oil. The Whole Foods on Houston
Street in Manhattan won't sell any less wild salmon or precious cheeses
due to higher gas prices. But if you're a retailer who caters to people
with limited incomes who generally rely on cars for all their
transport, and who must travel long distances to get to the store —
well, that's another story. For this segment of the population, the cash
for groceries and gas tends to come out of the same pool. An extra $10
per week spent at a Mobil station in Kansas is likely to result in $10
fewer spent at Wal-Mart.

Airlines (and their passengers). U.S. airlines have continued to
struggle even as the economy expands, in part because fuel is a very
large fixed cost that airlines are largely powerless to control. When
fuel prices rise, airlines face the unenviable choice of passing the
higher costs through immediately to their customers (thus alienating
them further), or eating the costs, thus sapping their profits.
Companies can protect themselves against spikes in the price of oil by
hedging. But that costs money, and involves the use of derivatives. This
great chart from Bloomberg on fuel hedging
shows that, in the fourth quarter of 2011, American Airlines hedged
only 52 percent of its consumption while JetBlue hedged 45 percent of
its consumption.

The Kwik-E-Mart. Consumers often wind up expressing their rage over
high gas prices at gas stations. But the convenience stores/gas stations
that gobble up large chunks of our paychecks are also victims. When gas
gets very expensive, people drive less and buy smaller amounts of gas.
That's bad for business. And as the National Association of Convenience
Stores (NACS) reminds us,
more consumers tend to drive off without paying when gas nears $4 per
gallon. Also, as NACS reports, the real money at gas stations lies not
in the sale of low-margin toxic stuff you put in your gas tank, but in
the sale of high-margin toxic stuff you put in your mouth: soda,
slushies, nasty hot dogs. As NACS notes:
"Motor fuels sales accounted for more than two-thirds of the
convenience store industry's sales in 2010 (66.9 percent). However,
because of low margins, motor fuels sales contributed less than
one-third of total store gross margins dollars (26.4 percent)." When you
have to pay $60 instead of $50 to fill up, you're less inclined to
shell out for Doritos.

Refiners. High oil prices are great for the upstream components of
the business (i.e. crude extraction), but aren't so great for the
downstream components, like refining, distribution and retail. Oil
refiners perform best when the price they pay for crude oil is low and
the demand for finished product is high. The difference between the two
is known as the cracking spread.
But when crude prices rise sharply, it means refiners pay more for
their key input as local demand tapers off. And that tends to compress
cracking spreads. (Here's a Bloomberg chart of cracking spreads.) As this one-year chart of the big refiner Valero shows, rising crude prices don't necessarily produce a gusher of profits for refiners.

A lot of VCs change jobs at some point. But Eric O’Brien, former
managing director at Lightspeed Venture Partners, seems to be pursuing
one of the more dramatic career switches.

That, at least, is the impression from a securities filing this
morning, which lists O’Brien as managing member of Fall Line Farms Fund
I, a Palo Alto, Calif.-based partnership that will buy and develop
farmland. So far, Fall Line has raised $11 million toward a target of
$200 million, according to the filing.

O’Brien had not responded to a request for comment as of press time.
His profile at AngelList lists him as founder of Fall Line Capital,
which is described as “a PE fund dedicated to acquiring farmland and
improving its productivity through the application of technology and
cutting edge best practices.”

Also listed as a managing director is Clay Mitchell, owner of The
Mitchell Farm, a 2,500 acre farm in northeast Iowa that produces corn
and soybeans, with a focus on soil conservation practices. Mitchell, a
Harvard biomedical engineering grad, describes the approach on the
farm’s website as a “combination of no-till, controlled-traffic farming,
farmwide wireless LAN, centimeter-level automation of seed, fertilizer
and chemical application, and strip-intercropping."...MORE

Tuesday, February 28, 2012

Judges on a U.S. appeals court appeared skeptical Tuesday of industry
challenges to the Environmental Protection Agency's 2009 finding that
greenhouse gases endanger public health and welfare, a key determination
for Obama administration rules regulating carbon-dioxide emissions.

The EPA finding set the stage for the government's first
greenhouse-gas emissions standards on cars, set to begin with the 2012
model year, and new rules on permits for power plants and factories.

The Washington-based U.S. Court of Appeals is hearing two days of
oral arguments on the EPA rules. Industry groups representing chemical,
energy, farming and mining companies, as well as Republican lawmakers,
are among those challenging the rules. They say the regulations are the
most costly, burdensome and precedent-setting regulations the agency has
ever issued.

The outcome of the cases could determine whether the EPA can press forward with current and future greenhouse-gas regulations.

During the first day of court hearings, members of a three-judge
panel said they were required by law to give deference to the EPA's
finding that greenhouse-gas emissions were very likely responsible for
most global warming over the last half-century, and were a threat to
humans and the environment.

To prevail, the industry challengers would have to show the EPA's
findings were arbitrary, capricious or an abuse of government
discretion.

"You seem to be asking us to determine that the EPA is incorrect, but
that is not the standard," Chief Judge David Sentelle told a lawyer for
the challengers. Such a determination "would not be enough to win the
case for you," he said.

The appeals court also expressed doubts about challenges to the EPA's
ensuing greenhouse-gas standards for cars. The challengers are
primarily concerned about how the auto rules triggered EPA permitting
regulations on greenhouse-gas emissions from industrial facilities. Auto
makers support the rules.
Most of the challengers' arguments Tuesday appeared to meet with resistance from the court....MORE

If Apple releases the 3 next week the sweet spot for selling is...yesterday.
From Knowledge@Wharton:

Sales of the new and used Apple iPad 2 have soared in recent days after it was reported
that the iPad 3 may be launched in the first week of March. The rash of
iPad 2 sale listings on eBay, Nextworth and Gazelle, among other
places, illustrates how an anticipated new product helps create
“secondary markets” for older models. But these markets have a limited
upside, and don’t necessarily translate into bigger gains for new
offerings, say Wharton faculty experts.

As of Monday morning, eBay alone had 2,756 iPad sale listings, and
crossed 3,000 listings on some days last week. Do these listings help to
create new Apple users, or do they just reinforce users’ loyalty to
eBay and the “buy it used” ethos? Wharton marketing professor Jonah Berger
says secondary markets are good because they give a wide range of
consumers a chance to try a brand’s products. At the same time,
companies don’t make any money from customers who buy used products, he
notes.

“Most companies would rather extend the product line to have a
lower-priced option that reaches consumers who might otherwise have
thought about buying used [products],” says Berger. ”Apple did this with
the iPhone, for example, dropping the price of the older phones once
new ones came out.”

According to Wharton marketing professor Barbara E. Kahn,
these secondary markets mostly bolster loyalty to resell sites because
people buying used iPad 2s are getting a big discount on the original
sticker price. Also, eBay shoppers are generally different from those
who rush to buy the newest models, although these secondary markets
could become quasi marketing agents for newer models, she adds....MORE

Apparently the judges were asking very pointed questions.
This is a day old but will have to do until later this afternoon. As I said yesterday the "tailoring" rule is the most important of the four questions the court is going to address.
From E&E Publishing:

If the importance and complexity of a court case can be established
based on the number of lawyers at the lectern, then the battle over the
Obama administration greenhouse gas regulations is of epic proportions.
When the three interlinked cases are argued over two days at the
U.S. Court of Appeals for the District of Columbia Circuit this week, no
fewer than 18 different attorneys will advocate for their clients
before the three-judge panel.

By contrast, a typical appeals court argument over a U.S. EPA
regulation usually takes less than an hour and tends to involve no more
than a handful of attorneys.

In addition to the 18 attorneys who will actually speak --
representing EPA, industry groups, states and environmental
organizations -- there are dozens behind the scenes who have been
working on the litigation.
"This is one of the most complex and consequential sets of cases in
the history of environmental law," said Michael Gerrard, director of the
Center for Climate Change Law at Columbia Law School. "It involves not
just one project, industry or regulation, but a whole structure of
interlocking regulations that affect broad swaths of the economy."

There are four principal rules under the legal microscope before the
court, although two, the "timing" and "tailoring" rules, have been
consolidated into one case....MORE

...just when you though it couldn’t get worse: The World
Bank warns that China is headed for collapse. Imagine China crashing.
The country holding over a trillion of America’s debt. The same China
that’s running all over the world like a 19th century Wild West robber
baron, using reserve dollars they got from years of financing America’s
costly wars and cheap toys.

Adding insult to injury, China’s now using these reserve dollars to buy
and hoard huge land resources, commodity futures and equities worldwide.
Yes, China’s rubbing it in: China’s future is being paid for at the
cost of America’s future...the World Bank’s game-changing new report
predicting China’s headed for a major collapse that will sabotage the
global economy.

Yes, a collapse of China. And what’s really fascinating is how China’s
predictable doomsday scenario parallels America’s. Yes, we know
America’s elite Super Rich gained virtual control over Washington the
past three decades. And now, ironically, that same bizarre capitalism is
sabotaging the goose that laid the golden egg for China’s Super Rich
too....MORE

If that happens every farmland mortgage approved in the last year goes underwater. Throw in diesel at six bucks and there could be some real problems.
From Agrimoney:

US
farm officials signalled expectations that corn prices will return
below $5 a bushel as they forecast a doubling in domestic inventories of
the grain, boosted by a record harvest.

The US
Department of Agriculture, updating outline estimates unveiled last
week, forecast the US corn crop soaring 15% to top 14bn bushels for the
first time this year, backed by growth in yields as well as sowings.

Consumption
will hit a record high too, supported by expansion at US pork and
poultry farms, by growing exports, and the end of a long-term decline in
the use of corn-based sweeteners by domestic drinks groups.

Even so, the harvest will cover use with some 800m bushels to spare, allowing a "sharp recovery" in inventories.

Stocks
will end 2012-13 at 1.62m bushels, more than doubling year on year, and
ending a two-season spell when historically low inventories have
supported prices.

'Sharply lower prices'

Indeed,
the recovery in supplies will put "substantial downward pressure on
futures and cash corn prices" in 2012-13, with values set to drop
"sharply lower by fall harvest"....MORE

ST. PAUL, Minn. & OKLAHOMA CITY, Feb 21, 2012 (BUSINESS WIRE) --
3M MMM-0.19%
and Chesapeake Energy Corporation CHK+0.20%
today
announced an agreement to collaborate in designing, manufacturing and
marketing a broad portfolio of compressed natural gas (CNG) tanks for
use in all sectors of the United States transportation market. Currently
the fuel tank on a CNG vehicle is its most expensive single component.
The new CNG tanks developed through the 3M and Chesapeake partnership
will reduce costs while increasing performance. Less expensive tanks
will enable greater market adoption of CNG as an alternative automotive
fuel source.

I just came across an excellent paper
from DB about TVIX. There are significant structural changes in the
market with increasing TVIX AUM, and its impact on all other volatility
instruments.

The main takeaway from the article is that leveraged products are
short-gamma - requiring ETN provider to buy after positive move in the
underlying, and sell after negative move - whether it is bull or bear.
Natural hedge for such product, a long gamma ETN, would require leverage
between 0 and 1, and does not exist, or likely to ever appear in the
market.

If you tax cigarettes, then cigarette tax revenue tends to rise. At the
same time, the higher taxes may inspire people to quit smoking or to buy
packs on the black market both of which tend to make revenue fall.
There's some revenue-maximizing price point out there beyond which
higher taxes produce lower revenue. And the same, one would think,
applies to income taxes. But where is that number? Christina Romer and
David Romer have a new paper looking at evidence from the 1920s and 1930s
and find that the revenue-maximizing rate on the highest earners is
extremely high—over eighty percent. Among the top 0.05 percent of the
income distribution they find an elasticity of taxable income of 0.19
percent which
implies "implies that tax revenues would be maximized with a tax rate
of 84 percent; that is, you could raise taxes up to 84 percent before
people’s reduced incentives to make money would compensate for the
higher tax rates."...MORE

*For British politicians of a certain age [often referred to as octo or nona-genarians -ed]
the scandal surrounding Secretary of State for War John Profumo's
affair with the alleged mistress of a Russian spy was highlighted by the
testimony of Miss Rice-Davies, a friend of the alleged mistress,
Christine Keeler.
From Wikipedia:

While giving evidence at the trial of Stephen Ward,
charged with living off the immoral earnings of Keeler and Rice-Davies,
the latter made a famous riposte. When the prosecuting counsel pointed
out that Lord Astor denied an affair or having even met her, she
replied, "Well, he would, wouldn't he?"

One of these days I'll have to tell the story of how
CalPERS got to this point. It is an ugly tale. For now we'll just post
the slow motion train wreck.
On a positive note: Mandy Rice-Davies* moment ahead!

One of my favorite usages:

Lord McIntosh of Haringey: My Lords, I am proud of
many things that this Government have done. I pause to anticipate the
interjection—"He would say that, wouldn't he?"...

Oil and gas futures dipped Monday but the relentless surge in energy
prices is very likely to continue in the days and weeks ahead, according
to Fadel Gheit, senior energy analyst at Oppenheimer.

In fact, Gheit believes oil prices could go "much higher" — with
Brent crude surging into the $160-$170 per barrel range vs. around $124
currently — in the not too distant future because of ongoing tensions
with Iran.
Such a surge would undoubtedly put further upward pressure on
gasoline and other refined products.

A supply disruption in the Strait of Hormuz is a "nightmare scenario"
and the situation with Iran is "coming to a head," he tells Henry in the
accompanying video. Tensions between Iran and the U.S. and its allies
have been rising in recent weeks over concerns about Iran's nuclear
capabilities. On Friday, the International Atomic Agency reported Iran
has increased its production of enriched uranium, the latest in a series
of events that have alarmed Western policymakers, most notably in
Israel, about Iran's capacity to build nuclear weapons....MORE, including video

For our younger readers, in 1983 and '84 Mr. Buffett famously bought the bonds of Washington Public Power Supply Service (WPPSS pronounced Whoops).*
From Bloomberg:

Warren Buffett, who bought about $2
billion in bonds of power company Energy Future Holdings Corp.,
said the investment is at risk of losing all its value after
natural gas prices fell.

Buffett’s Berkshire Hathaway Inc. (BRK/A) wrote down the debt by
$390 million last year, following a $1 billion impairment in
2010, the billionaire said in his annual letter to shareholders
posted Feb. 25 on the company’s website. The market value of the
investment was $878 million at the end of December, he said.

“If gas prices remain at present levels, we will likely
face a further loss, perhaps in an amount that will virtually
wipe out our current carrying value,” wrote Buffett,
Berkshire’s chairman and chief executive officer.

“Conversely,
a substantial increase in gas prices might allow us to recoup
some, or even all, of our writedown.”

Buffett, 81, invested in the bonds in 2007 after Energy
Future, then called TXU Corp., was bought by KKR & Co. (KKR) and TPG
Capital in the largest leveraged buyout. The private-equity
firms wagered that gas prices would rise, pushing up wholesale
electricity rates. Instead, prices fell amid an expansion of
drilling, forcing down what Energy Future charges in unregulated
markets for power produced from sources including coal....MORE

Washington Public Power Supply System
From October, 1983 through June, 1984 Berkshire’s insurance
subsidiaries continuously purchased large quantities of bonds of
Projects 1, 2, and 3 of Washington Public Power Supply System
(“WPPSS”). This is the same entity that, on July 1, 1983,
defaulted on $2.2 billion of bonds issued to finance partial
construction of the now-abandoned Projects 4 and 5. While there
are material differences in the obligors, promises, and
properties underlying the two categories of bonds, the problems
of Projects 4 and 5 have cast a major cloud over Projects 1, 2,
and 3, and might possibly cause serious problems for the latter
issues. In addition, there have been a multitude of problems
related directly to Projects 1, 2, and 3 that could weaken or
destroy an otherwise strong credit position arising from
guarantees by Bonneville Power Administration.
Despite these important negatives, Charlie and I judged the
risks at the time we purchased the bonds and at the prices
Berkshire paid (much lower than present prices) to be
considerably more than compensated for by prospects of profit.
As you know, we buy marketable stocks for our insurance
companies based upon the criteria we would apply in the purchase
of an entire business. This business-valuation approach is not
widespread among professional money managers and is scorned by
many academics. Nevertheless, it has served its followers well
(to which the academics seem to say, “Well, it may be all right
in practice, but it will never work in theory.”) Simply put, we
feel that if we can buy small pieces of businesses with
satisfactory underlying economics at a fraction of the per-share
value of the entire business, something good is likely to happen
to us - particularly if we own a group of such securities.
We extend this business-valuation approach even to bond
purchases such as WPPSS. We compare the $139 million cost of our
yearend investment in WPPSS to a similar $139 million investment
in an operating business. In the case of WPPSS, the “business”
contractually earns $22.7 million after tax (via the interest
paid on the bonds), and those earnings are available to us
currently in cash. We are unable to buy operating businesses
with economics close to these. Only a relatively few businesses
earn the 16.3% after tax on unleveraged capital that our WPPSS
investment does and those businesses, when available for
purchase, sell at large premiums to that capital. In the average
negotiated business transaction, unleveraged corporate earnings
of $22.7 million after-tax (equivalent to about $45 million pre-
tax) might command a price of $250 - $300 million (or sometimes
far more). For a business we understand well and strongly like,
we will gladly pay that much. But it is double the price we paid
to realize the same earnings from WPPSS bonds.
However, in the case of WPPSS, there is what we view to be a
very slight risk that the “business” could be worth nothing
within a year or two. There also is the risk that interest
payments might be interrupted for a considerable period of time.
Furthermore, the most that the “business” could be worth is about
the $205 million face value of the bonds that we own, an amount
only 48% higher than the price we paid.
This ceiling on upside potential is an important minus. It
should be realized, however, that the great majority of operating
businesses have a limited upside potential also unless more
capital is continuously invested in them. That is so because
most businesses are unable to significantly improve their average
returns on equity - even under inflationary conditions, though
these were once thought to automatically raise returns.
(Let’s push our bond-as-a-business example one notch
further: if you elect to “retain” the annual earnings of a 12%
bond by using the proceeds from coupons to buy more bonds,
earnings of that bond “business” will grow at a rate comparable
to that of most operating businesses that similarly reinvest all
earnings. In the first instance, a 30-year, zero-coupon, 12%
bond purchased today for $10 million will be worth $300 million
in 2015. In the second, a $10 million business that regularly
earns 12% on equity and retains all earnings to grow, will also
end up with $300 million of capital in 2015. Both the business
and the bond will earn over $32 million in the final year.)
Our approach to bond investment - treating it as an unusual
sort of “business” with special advantages and disadvantages -
may strike you as a bit quirky. However, we believe that many
staggering errors by investors could have been avoided if they
had viewed bond investment with a businessman’s perspective. For
example, in 1946, 20-year AAA tax-exempt bonds traded at slightly
below a 1% yield. In effect, the buyer of those bonds at that
time bought a “business” that earned about 1% on “book value”
(and that, moreover, could never earn a dime more than 1% on
book), and paid 100 cents on the dollar for that abominable
business.
If an investor had been business-minded enough to think in
those terms - and that was the precise reality of the bargain
struck - he would have laughed at the proposition and walked
away. For, at the same time, businesses with excellent future
prospects could have been bought at, or close to, book value
while earning 10%, 12%, or 15% after tax on book. Probably no
business in America changed hands in 1946 at book value that the
buyer believed lacked the ability to earn more than 1% on book.
But investors with bond-buying habits eagerly made economic
commitments throughout the year on just that basis. Similar,
although less extreme, conditions prevailed for the next two
decades as bond investors happily signed up for twenty or thirty
years on terms outrageously inadequate by business standards.
(In what I think is by far the best book on investing ever
written - “The Intelligent Investor”, by Ben Graham - the last
section of the last chapter begins with, “Investment is most
intelligent when it is most businesslike.” This section is called
“A Final Word”, and it is appropriately titled.)
We will emphasize again that there is unquestionably some
risk in the WPPSS commitment. It is also the sort of risk that
is difficult to evaluate. Were Charlie and I to deal with 50
similar evaluations over a lifetime, we would expect our judgment
to prove reasonably satisfactory. But we do not get the chance
to make 50 or even 5 such decisions in a single year. Even
though our long-term results may turn out fine, in any given year
we run a risk that we will look extraordinarily foolish. (That’s
why all of these sentences say “Charlie and I”, or “we”.)
Most managers have very little incentive to make the
intelligent-but-with-some-chance-of-looking-like-an-idiot
decision. Their personal gain/loss ratio is all too obvious: if
an unconventional decision works out well, they get a pat on the
back and, if it works out poorly, they get a pink slip. (Failing
conventionally is the route to go; as a group, lemmings may have
a rotten image, but no individual lemming has ever received bad
press.)...

...Lastly today I wanted to spend some time looking at the current Dow
Theory divergence between the Dow and Transports indices. For those of
you who aren't familiar with Dow Theory (DT) I'll recap it very quickly
by saying that it is one of the oldest schools of TA, that it has been
working well for over a century since being first developed by Charles
Dow, one of the founders of the Wall Street Journal, and creator of the
eponymous Dow Index. The theory behind it is essentially that in a
strong uptrend or downtrend both indices need to confirm new highs or
lows, and that when one index makes a new high or low that is not
confirmed by the other, then it is a signal that a significant top or
bottom may be close.

Here's the weekly Dow vs Transports chart over the last 15 years to
illustrate that DT divergences are generally seen at most major highs
and lows on the monthly chart, with March 2009 being a notable
exception. The current divergence is very striking, with Dow over the
2011 highs and Transports still well below:

Looking at these indices on the one year daily chart, you can see
that these indices generally track each other well. There was a new high
on Transports in July 2011 that was not confirmed by the Dow and that
preceded the waterfall last summer. There was no divergence at the
October low, though these divergences do appear more reliably at highs
than at lows. The current divergence is very striking, and comparable to
that seen at the 2000 and 2007 highs.

What's worth bearing in mind however is that this DT divergence would
be eliminated as soon as Transports beat the 2011 high, and that
significant previous divergences in 2004 and 2010 lasted for months
before confirmation. The divergence in 2004 lasted about six months
before Dow confirmed with a new high at the end of that year. It is
interesting though, and worth keeping an eye on. If SPX should fall
below 1292 I would start paying this signal much more attention:

Federal prosecutors in Chicago have convened a grand jury to
investigate potential wrongdoing surrounding the collapse of MF Global,
the commodities firm once run by Jon S. Corzine, according to a
regulatory filing.

The CME Group, the exchange operator and
for-profit regulator of MF Global, disclosed in its annual report on
Tuesday that it had received two subpoenas related to the brokerage
firm: one from a federal grand jury in Chicago and another from the
Commodity Futures Trading Commission, the regulator heading up the
investigation.

The Federal Bureau of Investigation and federal
prosecutors in New York are also examining how the firm misused more
than a billion dollars of customer money, which has not been recovered....MORE

Imagination at Work.
The writer somehow avoids mentioning that GE Chairman Jeffrey Immelt is also Chairman of the President's Council on Jobs and Competitiveness.
From the Huffington Post:General Electric Tax Rate 2.3 Percent Over Decade, Report Finds

Caption: General Electric CEO Jeffrey Immelt seen during a
discussion in Washington. D.C. earlier this month. An analysis of GE's
taxes shows that the company paid just 2.3 percent of its profits in
federal income tax over the past 10 years.

General Electric again finds itself the focus of a politically-charged battle over corporate taxes.
A new analysis of the mega-corporation's tax filings shows that 2.3 percent of GE's pre-tax profits have gone to the federal government since 2002. That bears repeating: GE has paid an average tax rate of just 2.3 percent over the past decade, according to an analysis by the non-profit advocacy group Center for Tax Justice.

If you'll think back to your high school math classes, you'll recall
that 2.3 percent is less than 35 percent. That means GE is paying well below the top marginal corporate tax rate of 35 percent -- the same tax rate that business leaders, politicians and conservative commentators have repeatedly deplored as high enough to impede economic growth....MORE

Q-Cells SE—a financially ailing German manufacturer of solar energy
components—has long been stressing milestone after milestone on its path
back to financial health.

But late Monday, the situation seemed to take a turn for the worse.
In an English-language press release, after noting another positive
achievement, Q-Cells dropped a bomb, saying management considers the
company “over-indebted” and would have to look into filing for
insolvency.

But wait; maybe they were getting ahead of themselves. While the
possibility may be in the offing, Q-Cells isn’t on the verge of filing
for insolvency, they clarified in a phone call before correcting their
press release.

The announcement was a Freudian slip that came as a stray paragraph
in a press release that Q-Cells sent out to report that creditors had
approved a plan to defer the repayment of a convertible bond that would
have matured at the end of this month to April 30, giving Q-Cells more
time to sort out the remaining debt issues.

The following is a list of 20 richest Ethiopians in 2011.
The list is compiled by Ethiopian Review Intelligence Unit. Except for a
few of the individuals in the list, most of them, particularly the TPLF
members, have enriched themselves through corruption and outright
thievery. Girma Birru and Tadesse Haile, for example, forced
construction companies to make them partners if they want to win bid for
government projects. These are the parasites who made Ethiopia one of
the poorest nations in the world. Only Eyob Mamo, who owns most of the
gas stations in the Washington DC Metro Area, became rich through sheer
hard work, business savvy, and some luck. Omer Ali, Ketema Kebede, and
Minwuyelet Atnafu are not affiliated with the ruling party, but they pay
huge sums of money to Azeb Mesfin and the other TPLF thugs to keep
working inside the country.

Azeb Mesfin,
wife of Meles Zenawi, member of the TPLF politburo, head of the
$40-billion Endowment Fund for the Relief of Tigray (EFFORT), partner in
several large businesses in Ethiopia, widely known as “the Mother of
Corruption,” estimated net worth: $3 billion

Sebhat Nega,
former chairman of TPLF, ex-TPLF politburo member, former head of
EFFORT, current chairman of Wugagan Bank, owns several buildings and
luxury villas in Ethiopia and the U.S., net worth: $2.5 billion

Monday, February 27, 2012

Buying Germany's Hidden ChampionsTakeover Could Signal New Strategy for China

Concrete pump manufacturer Putzmeister is the first top-tier
German company to be acquired by a Chinese company eager to get its
hands on Western know-how, but it is unlikely to be the last. The
acquisition could be the start of a new strategy as China tries to
transform itself into a high-tech economy. And the Germans might even
benefit too.

Is there a greater insult for a business owner in Germany's famously
house-proud Swabia region than being told its facilities are too dirty?
If there is, it would have to be the accusation that he has sold his
life's work to the communists.

Karl Schlecht has had to live with this verdict since the Friday before
last. Schlecht, 79, has sold the company that he founded, the concrete
pump manufacturer Putzmeister Group, to its rival Sany, a construction
machinery giant from the southern Chinese city of Changsha.

The deal, hammered out in secret, has triggered a "state of shock" at
Putzmeister headquarters in Aichtal near Stuttgart, says a member of
the company's works council: "Not even the supervisory board was
informed." On Monday of last week, 700 Putzmeister employees gathered in
front of the factory gates to protest the sale to the Chinese.

In the meantime, company founder Schlecht went on a tour of China, at
the invitation of the purchasers. A butler attended to his needs in a
luxury guesthouse in Changsha, and Sany Chairman Liang Wengen put one of
his four Maybach limousines, complete with a chauffeur, at Schlecht's
disposal. The German guest was also flown in the company helicopter to
the birthplace of the former Chinese dictator, Mao Zedong.

'Monumental Stupidity'
Schlecht cannot understand the consternation of his employees in
Aichtal. He calls their reaction "monumental stupidity." After touring
the Sany plant, Schlecht is convinced that what Sany is doing in China
is "something we can only dream of," and that the takeover was the best
thing that could have happened to Putzmeister. The Swabian native was
also impressed by the Chinese facilities. "It was as clean as a whistle
there," he says....MORE

...The crane is so big it needs to fly on the world's biggest
cargo plane, the Russian-built Antonov 225, and requires special
permits. Along with the American pump,a 190-foot pump is being sent
from Vietnam and two 203-foot pumps are going from Germany. None of the
pumps can be returned because all will be too contaminated by
radiation....

You could do the whole Oxford Union at Michaelmas thing: "This House has no confidence in Her Majesty's Government" with a segue to:

In tough times we need big ideas – and here's one the whole country can get behind

Every day the government announces a new initiative to steer the
country out of recession, each one stupider and more footling than the
last. What next? Single parents forced to register as limited companies?
National Rolled-Up Sleeves Day? A silver jubilee £10 note with Adele's
head on it?

That shower of gormless berks in the cabinet, look at
them. Not a clue. Round and round they go on the media carousel, taking
it in turns to be interrupted by John Humphrys, jabbering about a
"vision for the future". Vision! A SEA CUCUMBER has more vision than
this government.

History teaches us that tough times call for BIG
IDEAS. Inspirational, forward-looking, optimistic, daring ventures the
whole country can get behind. Which is why I am proposing that we
relocate the capital of England to Tamworth in Staffordshire. Here are 10 reasons why.

1
London's turn is up. It has been the capital of England since the 12th
century. Enough is enough. Samuel Johnson said: "When a man is tired of
London he is tired of life; for there is in London all that life can
afford." Yeah, no disrespect mate, I'm sure that sentence made perfect
sense in the 1760s. But someone looking for a furnished flat in Zone 2
today might put "life" "tired" and "afford" in a totally different
order. Let's move the capital city somewhere cheaper. London can
continue to flourish as a world class destination for global tourism,
centre of banking excellence, playground for foreign gangsters, setting
for the BBC's popular Sherlock, etc. A new capital would also neatly
resolve the ancient squabble about whether Birmingham or Manchester is
England's second city. Let's make LONDON the second city.

2Tamworth was England's original capital.
It would be an inspired act of restorative historical justice to return
this unassuming Midlands town (currently home to "the UK's first
full-sized real-snow indoor ski slope") to its 8th-century glory. The
mighty Offa, King of Mercia and All England, had a palace there, built a
bloody great dyke to keep the Welsh out, had the southern ponces of
Wessex and Anglia firmly under control for a while and was on excellent
terms with the Muslim world. Happy days.

3 It
would generate a massive economic stimulus. I've done some preliminary
paperwork on this and I calculate it will cost roughly £27 trillion to
build a proper new capital city. Imagine the number of jobs created, the
construction activity, the sheer economic momentum. Instant recovery.

4
A new geo-political era. Once Scotland goes independent, will Wales and
Northern Ireland be far behind?New Tamworth would be much closer
geographically to the former United Kingdom than Olde Londonne.
Tamworth's bang in the middle of legendary "middle England" so
politicians would presumably be thrilled to relocate from Westminster.

5
Rethinking the monarchy. New capital, new palace, a new system for
electing the king and queen of plucky little England. Perhaps yearly, by
telephone vote. Better still, we could scrap counties and revert to the
old Anglo-Saxon Heptarchy. Imagine. Seven kingdoms, seven lots of
elected royals. A tourism goldmine. There could be paintballing wars and
mead-quaffing contests and proper regional television again. God save
the kings and queens!...MORE at the Guardian

...The USA has evolved into a two-tier gas market. The supply of crude from
Canada and the Bakken fields has created a lower cost of supply for the
central portion of the country. This differential is most notable in
the market spread between WTI (a futures contract that settles physical
delivery in Oklahoma) and LLS (Louisiana Light Sweet Crude) - the
pricing of crude for the big Gulf refineries....

Consider this map of the country. The green area is where the Canadian
crude is helping to keep prices lower. The dark red areas are those that
are dependent on the high-priced, imported crude.

Gas prices are north of $5 in southern California today, but they are as low as $2.95 in Ft. Collins Colorado.

While this may make the folks in Colorado and North Dakota happy, it
will crush the national economy. It doesn’t matter what happens in Co.
or N.D., they have (relatively) no cars.

A few years ago, the Highway Transportation Department put out a report
on registered vehicles by state. The total of all registered vehicles
was 244,000,000. Of that total, 33 million were on the roads of
California (13%), only 1.8 million (0.75%) were in Colorado, and a
measly 700k (0.25%) are in North Dakota. The total of vehicles on the
road in the states that are in red in the above map comes to 137
million. Fully 56% of all vehicles are in high cost states. Only 15
million vehicles (6% of total) are registered in the green states!

Due to fears over the situation in Iran, amongst other things, oil
prices are at a nine month high, and petrol prices are also at near
record levels. These high prices have spurred Democratic Representatives
Ed Markey of Massachusetts, Peter Welch of Vermont, and Rosa DeLauro of
Connecticut, to write a letter to Obama in order to ask him to use oil
stockpiles to help reduce the price of oil in the US. The US holds 696
million barrels of oil, the world’s largest, government owned stockpile,
to be used in times of low oil supply.

“This most-recent run-up in prices is primarily the result of
fear driving oil markets,” Markey, Welch and DeLauro wrote to Obama. “We
urge you to consider again deploying oil” in the reserve “to combat the
rapid price escalations resulting from speculation.”...MORE

Rob Cox and Daniel Indiviglio have created
what they call the “Cordray Index” to measure the impact of new
regulations on the “netherworld of the money industry”--the payday
lenders, pawnshops, and others besides banks that are under new scrutiny
from the Consumer Financial Protection Bureau.

These lenders
actually benefited from the financial crisis, as banks pushed out
subprime customers with poor credit history, forcing them to got to
payday lenders and the like. As a result, the 15 companies that make up
Cox and Indiviglio’s Cordray Index significantly outperformed the banks
in the S&P 500 and the index as a whole:
(SOURCE: THOMSON REUTERS) The assumption is that new regulations from the CFPB will bring
these alternative lenders back down to earth. Some listed in the index
are facing increasing scrutiny over abusive practices....MORE

Drawing on our semi-vast [half-vast? -ed] experience of human nature we said, as early as December 2010:

My short side radar is starting to glow. The perfect play for the
Chinese would be to maintain a very tight supply to Japan and the West
until MCP, Lynas and REE go into production and then crash the market....

China, the biggest supplier of rare
earths, may almost double exports this year and meet quotas set
by the government as lower prices stimulate demand.

Chinese exports were 49 percent of the government-alloted
quota in the first 11 months of last year because the slowing
global economy sapped demand, the Ministry of Commerce said in a
Dec. 27 statement. Overseas sales quotas may be virtually
unchanged this year at 31,130 metric tons, based on Bloomberg
calculations.

“Export quotas may be met this year as overseas demand
recovers,” Wang Caifeng, a former official overseeing the rare-
earth industry with the Ministry of Industry and Information
Technology, said in an interview in Beijing. “High prices last
year had deterred purchases and led to inventories’ depletion.
Smuggling also hampered exports through illegal channels.”

Rare-earths prices have tumbled since the third quarter as
consumers, including makers of electric cars and wind turbines,
reduced use. The average price of lanthanum oxide, a rare earth
used in rechargeable batteries and refining catalysts, was
129,167 yuan ($20,508) a ton in the fourth quarter, 15 percent
less than in the third quarter, according to data from Shanghai
Steelhome Information.

Rare-Earth Shares Fall Molycorp Inc. (MCP), the owner of the largest rare-earth deposit
outside of China, fell 2.4 percent to $26.17 at 11:53 a.m. in
New York.

Lynas Corp., developer of the world’s largest rare-earths
refinery, fell 4.7 percent to A$1.23 in Sydney....MORE

...The recent divergence between oil and natural gas has caused the
ratio between the two to skyrocket. The average ratio of oil to natural
gas prices since 1990 has been 10. As shown below, the ratio is
currently at 43.2....

This is a pretty big deal affecting approximately 20% of GDP.
The question is whether the EPA or any Executive branch agency has the power to ignore the actual wording of the Clean Air Act to "tailor" the rules. Tomorrow and Wednesday a three-judge panel of the D.C. Circuit Court of Appeals will hear two full days of oral arguments on this and three other issues.
First up Reuters:E.P.A. proposes streamlining CO2 permitting for heavy industry

U.S.
environmental regulators have proposed a new rule that limits
requirements for factories to hold permits for greenhouse gas carbon
emissions to the largest sources such as big coal-fired power plants and
big manufacturers.

The Environmental Protection
Agency's chief Lisa Jackson signed on Friday the third step of a
so-called "tailoring rule" on carbon emissions which proposes to keep
greenhouse gas permitting at current levels of at least 100,000 tons per
year of carbon dioxide equivalent.

Plants
with that level of pollution that make changes that would lead to an
increase in the pollution of 75,000 tons per year would have to get
another round of permits.

Under the
new rule, the EPA will not require industrial plants that emit 50,000
tons per year of carbon dioxide, or a bit more, to hold permits for
releasing carbon dioxide, according to documents on the agency's web
site.

The EPA's program on fighting
emissions blamed for warming the planet will be challenged in a federal
court this week, with opening arguments being heard on Tuesday and
Wednesday.

An environmentalist said the proposals limiting permitting to the largest sources made sense.

"I
don't think you'd get much gain from the headache of going after the
smaller sources," said Frank O'Donnell, president of Clean Air Watch. He
said state and local permitting agencies that have faced budget cuts
could have trouble handling work load if permits for the smaller
polluters were required....

EPA’s endangerment finding and tailpipe, tailoring and timing rules
to face legal challenges in a single case consolidated from dozens of
lawsuits.

WASHINGTON—Opponents intent on blocking EPA's "endangerment finding"
and the agency's other efforts to regulate emissions of heat-trapping
gases via the Clean Air Act will have their two days in court this week.

A three-judge panel with the U.S. Court of Appeals is slated to hear
oral arguments on the legal challenges Tuesday and Wednesday in the
nation's capital.

In addition to the endangerment finding, the court will be reviewing a
trio of other regulations—abbreviated as the "tailpipe," "tailoring"
and "timing" rules. Combined, they are the bedrock of the Environmental
Protection Agency's attempts to regulate emissions of carbon dioxide and
other greenhouse gases from vehicles and big industrial sources.

All four rules represent the agency's response to Massachusetts v. EPA.
In that landmark 2007 decision, the Supreme Court gave EPA authority
over carbon pollution. The high court justices also made it clear that
agency officials could not shirk that authority unless they could
provide a scientific basis for refusing to act.

The appeals court's rulings, expected to be issued this summer, are
significant because they have the potential to halt, delay, modify or
increase the scope of EPA's regulation of carbon under the Clean Air Act.

To streamline the two-day exercise, dozens of lawsuits by the petitioners have been combined under the name Coalition for Responsible Regulation v. EPA....MORE

The Center for Progressive Reform blog lays out some of the issues but focuses on the standing issue:EPA's Standing Argument: A Sleeping Giant in the Tailoring Rule Litigation?

On Feb. 28 and 29, the D.C. Circuit is scheduled to hear arguments on
a suite of industry-led challenges to EPA-issued greenhouse gas rules.
While attention has focused on industry’s challenge to EPA’s finding
that greenhouse gases (GHGs) endanger the environment, industry’s
challenge to the greenhouse gas permitting “tailoring” rule – a rule
limiting the CAA’s application to only the largest GHG sources – is just
as important, and just as interesting a battle. At issue is
constitutional law’s most hard-fought doctrine in environmental
litigation: standing to sue.

In its September 2011 brief,
EPA contends that the Tailoring Rule is designed to alleviate the
burden that the CAA would otherwise impose on a wide variety of
stationary GHG sources. Because it is alleviating, not imposing, a
burden, the Tailoring Rule does not create the “injury” that industry
must demonstrate to have standing to sue. If the plaintiffs lack
standing, then the court must dismiss industry’s challenge. The
injection of standing into the case makes the tailoring litigation all
the more interesting because, as a result, the court may have a strong
basis for dismissing what is otherwise considered a robust legal
challenge to the Tailoring Rule.

As an industry group argues in the Tailoring Rule case, Coalition for Responsible Regulation v. EPA,
the agency’s rule raising the emission thresholds for Prevention of
Significant Deterioration and Title V permits flatly contradicts the
express language of the Clean Air Act. The Clean Air sets these
thresholds at 250 and 100 tons per year, multiples lower than the
Tailoring Rule’s regulatory thresholds of at least 75,000 tons per year.
EPA argues that upping the thresholds was “necessary” to avoid “absurd
results” that would otherwise flow from the administrative burdens
created by low statutory thresholds, thresholds that could subject
numerous small-scale sources, like restaurants and other small
businesses, to CAA permitting requirements for the first time. (EPA has said that simply implementing GHG controls without the Tailoring Rule would
theoretically require 230,000 new employees to handle the permitting).
This is a good common sense argument, but many courts are reluctant to
ignore a statute’s literal language. The courts may never reach the
merits, however, if EPA succeeds in having the suit dismissed on
standing grounds....MORE

Rather than exporting the stuff it would be strategically smarter to build out the residential distribution system in the Northeast but no one asked me.
Here are today's economics, via the AP:

...Cheniere hopes to export 2.6 billion cubic feet of gas per day, about 4 percent of daily U.S. production.

U.S. natural gas futures closed at $2.55 per thousand cubic feet on
Friday. It costs about $3 per thousand cubic feet to liquefy the gas.
LNG sells for roughly $10 per thousand cubic feet in Western Europe and
$15 in Asia...

Here's Bloomberg via the Houston Chronicle's FuelFix blog:

Blackstone Commits $2 billion to Cheniere Gas-export Plant

DIFFERENT
DIRECTION: Tugboats pull an LNG tanker to Cheniere Energy's Sabine Pass
terminal in 2008. If Cheniere gets final government approval to build
liquefaction equipment, it will send the gas out of the U.S. instead of
bringing it in. (Photo: Nick De La Torre / Houston Chronicle)

Cheniere Energy Partners LP, operator of the largest U.S. natural
gas-import terminal, said Blackstone Group LP agreed to invest $2
billion toward construction of a $10 billion plant to export the fuel.
The investment by the New York-based private equity firm may help
convince creditors to lend the rest of the money needed to begin
construction of the facility in southwest Louisiana. Cheniere, which has
been seeking to add export capacity to its import terminal since 2010,
plans to begin construction by the end of June, Chairman and Chief
Executive Officer Charif Souki said in a statement.

A flood of gas from shale and other unconventional North American
rock formations produced a surfeit of the furnace and factory fuel that
pushed the price to the lowest in a decade. ConocoPhillips, Apache Inc.
and Sempra Energy are advancing plans to ship gas in liquid form aboard
tankers to overseas markets such as Japan and Spain, where it commands
higher prices.

“The U.S. now has some of the cheapest gas in the world,” Leonard
Coburn, president of Washington-based Coburn International Energy
Consultants LLC, said in a telephone interview. “The gas glut has got
people seriously talking about exporting.”...MORE

The U.S. Geological Survey, Multi Hazards Demonstration Project (MHDP)
uses hazards science to improve resiliency of communities to natural
disasters including earthquakes, tsunamis, wildfires, landslides, floods
and coastal erosion. The project engages emergency planners,
businesses, universities, government agencies, and others in preparing
for major natural disasters. The project also helps to set research
goals and provides decision-making information for loss reduction and
improved resiliency. The first public product of the MHDP was the
ShakeOut Earthquake Scenario published in May 2008. This detailed
depiction of a hypothetical magnitude 7.8 earthquake on the San Andreas
Fault in southern California served as the centerpiece of the largest
earthquake drill in United States history, involving over 5,000
emergency responders and the participation of over 5.5 million citizens.

This document summarizes the next major public project for MHDP, a
winter storm scenario called ARkStorm (for Atmospheric River 1,000).
Experts have designed a large, scientifically realistic meteorological
event followed by an examination of the secondary hazards (for example,
landslides and flooding), physical damages to the built environment,
and social and economic consequences. The hypothetical storm depicted
here would strike the U.S. West Coast and be similar to the intense
California winter storms of 1861 and 1862 that left the central valley
of California impassible. The storm is estimated to produce
precipitation that in many places exceeds levels only experienced on
average once every 500 to 1,000 years.

Extensive flooding results. In many cases flooding overwhelms the
state’s flood-protection system, which is typically designed to resist
100- to 200-year runoffs. The Central Valley experiences hypothetical
flooding 300 miles long and 20 or more miles wide. Serious flooding
also occurs in Orange County, Los Angeles County, San Diego, the San
Francisco Bay area, and other coastal communities. Windspeeds in some
places reach 125 miles per hour, hurricane-force winds. Across wider
areas of the state, winds reach 60 miles per hour. Hundreds of
landslides damage roads, highways, and homes. Property damage exceeds
$300 billion, most from flooding. Demand surge (an increase in labor
rates and other repair costs after major natural disasters) could
increase property losses by 20 percent. Agricultural losses and other
costs to repair lifelines, dewater (drain) flooded islands, and repair
damage from landslides, brings the total direct property loss to nearly
$400 billion, of which $20 to $30 billion would be recoverable through
public and commercial insurance. Power, water, sewer, and other
lifelines experience damage that takes weeks or months to restore.
Flooding evacuation could involve 1.5 million residents in the inland
region and delta counties. Business interruption costs reach $325
billion in addition to the $400 billion property repair costs, meaning
that an ARkStorm could cost on the order of $725 billion, which is
nearly 3 times the loss deemed to be realistic by the ShakeOut authors
for a severe southern California earthquake, an event with roughly the
same annual occurrence probability....MUCH MORE, including three PDF's

HT: the WaPo's Joel Achenbach* who, writing at Slate, says:The Century of Disasters

Meltdowns. Floods. Tornadoes. Oil spills. Grid crashes.
Why more and more things seem to be going wrong, and what we can do
about it.

This will be the century of disasters.

In the same way that the 20th century was the century of world wars, genocide, and grinding ideological conflict, the 21st
will be the century of natural disasters and technological crises and
unholy combinations of the two. It'll be the century when the things
that we count on to go right will, for whatever reason, go wrong.

Late last month, as the Mississippi River rose in what is destined to be the worst flood in decades, and as the residents of Alabama and other states rummaged through the debris of a historic tornado outbreak, physicists at a meeting in Anaheim, Calif., had a discussion about the dangers posed by the sun.

Solar flares, scientists believe, are a disaster waiting to happen.
Thus one of the sessions at the American Physical Society's annual
meeting was devoted to discussing the hazard of electromagnetic pulses (EMPs)
caused by solar flares or terrorist attacks. Such pulses could fry
transformers and knock out the electrical grid over much of the nation.
Last year the Oak Ridge National Laboratory released a study saying the
damage might take years to fix and cost trillions of dollars.

But maybe even that's not the disaster people should be worrying about....MORE

*Joel may just be putting his profound understanding of new media into practice:

...When in doubt, go with the most hysterical headline.

(Rule one of blogging is that the End Of The World will be good for page views.)